us stock market, trend trading stock

- MSFT hangover cools techs, but SP500 clears resistance.
- Oil blitzes back up toward 120 after what looked like a crack in the oil pan.
- Bonds continue their breakout . . . along with the dollar.
- Historic Fed action: stock, bond, dollar market bottomed on one day of action.
- Bulk of earnings season behind us, but economic calendar is jam-packed.
- Will techs and the Big 3 return to lead the week.

Here's a trade from "The Daily" and insights into our trading strategy:

Chart by StockCharts.com

Company Profile
One of the pre-2000 tech powerhouses, BRCM has had its issues. Nonetheless we watch for stocks emerging from trends without discriminating; you never know where the next leaders will come from.

Thus when BRCM reversed its trend and cleared the 50 day EMA, we were looking for an opportunity to get it. Even with earnings coming the break out of the downtrend and the positive consolidation without giving back the gains indicated the tide was turning. We put it on the report over the weekend (4-19) as it has formed a two week lateral move over the 50 day EMA and was not giving up in any market weakness. It had also gapped over the 90 day SMA on that Friday and looked to be starting another leg of the move.

The next Monday BRCM continued higher so we moved into positions with stock at $23.82 and some August $22.50 strike call options at $3.40 per option ($340/contract). We basically bought it at the high that session, wanting to see it close well. It did and we had our positions just ahead of its earnings report. BRCM announced those results and gapped sharply higher on 4-23-08. We did not jump out and sell on that initial gap, instead waiting to see if it would run higher given the strength of the numbers. It did, closing at $27.39 on the session. We decided to bank some gain so we sold some stock at $27.14 for a 13.9% gain. We also sold some of the options for $5.60 or a 64% gain ($220 profit per contract). Not a bad take for a couple of sessions.

Yes it was earnings and yes that can be a difficult time to buy in, but BRCM had put in the time and instead of continuing a weak trend lower, it reversed field and was building for a move higher with some big money accumulating shares. Thus we were very confident heading into earnings and profited handsomely in a short period. Not all earnings plays set up this way, but when you see them doing so you move in and reap the reward.

Learn more about "The Daily" with Stock Picks! - Issued 5 Times Per Week

Playing stock splits can be very profitable, but it takes know-how. Our stock split service focuses on three main types of plays:

1) pre-announcement (where we forecast an upcoming split prior to the company making the announcement); 2) pre-split (these plays are made in the days leading up to the actual split day); and 3) post-split plays (plays made after the actual stock split where the stock is showing continued or renewed strength).

For post-splits, we can play them as we would pre-splits (very short term), but we prefer to stretch our horizons, playing the trend. When playing options, we look further out, 2 or more months at least. We let the trend carry us along if there is one, but we will also take profits if the technical pattern degenerates, e.g., breaks a trendline. The main difference between post-splits and pre-splits plays is that we really have to like the pattern. Pre-splits can run right before their splits even with poor technical indicators. For post-splits, we are looking at the stocks from more of a longer term "would I buy this stock at this juncture?" position. Now there are times when a hot stock splits and investors pile in to get in while the stock is 'cheaper.' We play those, but with more of a short-term, pre-splits mentality in that we will be ready to get out fast if the momentum fades.

Remember, everything we do has to pass muster with the market that day ... don't fight the market on these plays.

Here's a post-split play and our current analysis.

Chart by StockCharts.com

Company Profile
EARNINGS: 4-30-08 before the open
STATUS: Double bottom w/handle. You could call this a handle or the first test of the breakout; take your pick because either way it looks quite tasty. NOV formed a 4 month double bottom that began to start the year. Broke over the February high (the hump) the second week of April and rallied to 75ish. It spent last week testing that strong volume move. Tapped the 18 day EMA on the Thursday low and rebounded sharply to close above the 10 day EMA (72.24). Friday it measured the breakout, fading back from the high. May take a couple more sessions to get right, but it is setting up nicely. NOV was a huge mover for us in 2007, and after that run it needed a base to work off the excess and set the foundation for the next move. Just about done with that.
Volume: 4.176M Avg Volume: 5.995M
BUY POINT: $76.11 Volume=7M Target=$91.45 Stop=$72.11
POSITION: NOV HO - Aug. $75c (56 delta) &/or Stock

Learn more about our Stock Split Report and how we have made gains of 321% with our powerful stock split plays!
Details Here.